MTD for Income Tax: A guide for self-employed and landlords

What is Making Tax Digital for Income Tax? (ITSA)

Making Tax Digital for Income Tax is HMRC’s system for collecting income tax information in a more regular, digital way.

Under MTD for ITSA, self-employed people and landlords no longer report their income to HMRC just once a year through Self Assessment. Instead, income and expenses are recorded digitally and shared with HMRC throughout the tax year using HMRC-recognised software.

The goal is to improve accuracy and reduce errors by moving away from paper records and last-minute calculations. Importantly, MTD for Income Tax does not change how income tax is calculated or how much tax you owe. It changes the process — making tax reporting more structured, digital, and ongoing.

MTD for Income Tax is part of HMRC’s wider Making Tax Digital program, which already applies to VAT. Income Tax is the next major area to move to this digital model.

MTD for Income Tax vs MTD for VAT: what’s the difference?

Both MTD for Income Tax and MTD for VAT are part of HMRC’s Making Tax Digital initiative, but they apply to different taxes and operate as two separate systems.

MTD for ITSA applies to income tax you pay on self-employment income and rental income from property, while MTD for VAT applies only to VAT. It’s mandatory if your business is VAT-registered, and it has its own rules, reporting periods, and deadlines.

This means:

• You can be affected by MTD for Income Tax even if you are not VAT-registered.

• If you are VAT-registered, you may need to comply with both MTD for VAT and MTD for Income Tax at the same time.

You can learn more about VAT-specific thresholds, deadlines, and compliance rules in our guide to Making Tax Digital for VAT. 

Who needs to comply with MTD for Income Tax?

MTD for Income Tax applies to self-employed sole traders and landlords in the UK who are currently required to file a Self Assessment tax return and whose income meets the mandatory thresholds.

Whether or not you need to comply depends on the type of income you receive, and if your qualifying income reaches a certain level. The key concept to understand here is qualifying income, which we’ll explain next. 

What counts as qualifying income?

For MTD for Income Tax, qualifying income means your gross income from self-employment and/or rental income made from a UK property — calculated before any expenses are deducted. 

The following income types are not included:

• Employment income taxed through PAYE 

• Dividends

• Pensions

• Savings and interest 

We’ll show you how to calculate your qualifying income later on in this guide.

Good to know: If you have jointly owned property, only your share of the rental income counts towards your qualifying income for MTD.

Exemptions and special cases: who can apply for digital exclusion?

Most self-employed people and landlords will need to comply with MTD for Income Tax once they meet the thresholds. However, there are certain cases where you may be exempt — for example, if you can’t reasonably use digital tools due to a disability or health condition, age-related barriers, or lack of access to reliable internet/digital infrastructure. 

Note that exemptions are not automatic. You must apply to HMRC and receive official confirmation that you’re exempt from MTD for Income Tax requirements.

If you are granted an exemption, you’ll continue to report your income through the existing Self Assessment process.

MTD for Income Tax thresholds and start dates (2026-2028 rollout)

MTD for Income Tax is being introduced in stages. If and when you need to comply depends on your qualifying income and the relevant start date set by HMRC. In this section, we’ll outline key dates in the rollout for each income level — then we’ll show you how to calculate your qualifying income so you know which dates apply to you. 

MTD for Income Tax mandatory start dates 

You’ll be required to follow MTD for Income Tax once your qualifying income reaches one of the thresholds below. HMRC determines this using information from a previous Self Assessment tax return, not your current-year income.

If your qualifying income is below the relevant threshold, you can continue using Self Assessment for now. 

How to calculate your qualifying income (with examples)

As we mentioned earlier, qualifying income for MTD for Income Tax is based only on gross income from self-employment and property. 

So let’s say you earn £42,000 from self-employment, plus £18,000 from a part-time job (paid by an employer and taxed through PAYE). For the year in question, you also earned £1,200 in savings interest. You don’t have any income from property. 

In this instance, only your income from self-employment counts towards MTD for Income Tax. At £42,000, that puts you in the second threshold — so you’d have to comply with MTD for Income Tax from April 2027 onwards. 

Now let’s consider a different scenario where you’re self-employed and also earn rental income from a property. You earn £28,000 from self-employment and £26,000 from your rental property, which you own outright. You also receive £3,500 in dividends.

In this case, your self-employment and rental income are added together to determine your MTD threshold. Dividends are excluded. Your total qualifying income is £54,000, putting you in the upper threshold — so MTD for Income Tax would apply from April 2026. 

What actually changes under MTD for Income Tax? The three core requirements explained  

Once MTD for Income Tax applies to you, the biggest change is how you manage and report your tax information during the year. Instead of preparing everything at the end of the tax year, reporting becomes more regular and fully digital. 

There are three key requirements to be aware of:

1. Digital record-keeping

2. Quarterly updates to HMRC

3. Final Declaration at the end of the year 

Here’s what they each mean in practical terms. 

1. Keeping digital records is mandatory 

Under MTD for Income Tax, you must keep digital records of all income and expenses related to your self-employment and/or property business.

This means recording:

• Income as it’s received

• Expenses as they’re incurred

• Key details such as dates, amounts, and categories

Paper records on their own will no longer meet HMRC’s requirements.

You can use spreadsheets to keep records, but only if they’re linked to HMRC-recognised bridging software that can submit data digitally to HMRC. 

In most cases, the best solution is to use dedicated accounting software that’s MTD-compatible. We’ll show you how to choose HMRC-compliant software later on in this post. 

2. Sending quarterly updates of income and expenses to HMRC

Instead of reporting once a year, you’ll need to send four quarterly updates to HMRC for each tax year.

These updates provide a summary of your income and expenses to date. They are not tax bills and do not trigger payments. Their purpose is to keep HMRC informed and give you a clearer picture of your tax position as the year progresses.

The standard submission deadlines are:

• 7 August

• 7 November

• 7 February

• 7 May

For a full overview of all submission and payment dates, see our dedicated guide on Making Tax Digital deadlines.

3. Submitting a Final Declaration at the end of the year

The Final Declaration replaces the traditional Self Assessment tax return. It’s  submitted after the end of the tax year and is where you:

• Finalise your income and expenses

• Claim allowances and reliefs

• Include any other taxable income not reported in quarterly updates

The Final Declaration confirms your overall tax position for the year and determines how much tax you owe. It must be submitted by 31 January following the end of the tax year in question.

Important: Although reporting is more frequent under MTD for Income Tax, the Final Declaration remains the point at which your tax liability is finalised.

MTD deadlines and penalties 

MTD for Income Tax comes with stricter submission rules than traditional Self Assessment. Once you’re within scope, you’ll need to meet multiple deadlines each year, not just one.

To support this, HMRC has introduced a new points-based penalty system for late submissions, alongside financial penalties for late payments.

In short:

• Missing a quarterly update can earn you penalty points

• Reaching a points threshold triggers a financial penalty

• Late payment of tax can result in percentage-based fines and interest

The more often you miss deadlines, the more likely penalties become. To stay compliant, you must submit on time and pay what you owe by the relevant deadlines. 

For a full breakdown of how the points system works, when penalties apply, and how to avoid fines, refer to our guide on Making Tax Digital penalties. 

How to prepare for MTD for Income Tax

The following steps will help you determine whether MTD applies to you and what you need to put in place before your start date.

1. Calculate your qualifying income and start date

Start by calculating your gross income from self-employment and/or property to see if MTD for Income Tax applies to you — and, if so, to determine which threshold you fall into and exactly when you’ll need to comply. 

For help with this step, refer back to the earlier section in this guide where we show you how to calculate your qualifying income. 

2. Review how you currently keep records

One of the biggest changes under MTD for Income Tax is the move from paper-based processes to fully digital record-keeping.

Take some time to review how you currently track income and expenses. If you rely on paper records or basic spreadsheets, make a note of what you’ll need to digitise, such as invoices and receipts, income records, and expense categories.

Understanding your starting point makes it easier to choose the right tools and plan ahead. 

3. Choose MTD-compatible software 

MTD for Income Tax requires the use of HMRC-recognised software to keep records and submit information digitally. Choosing the right software is one of the most important preparation steps, and it’ll have the biggest impact on your day-to-day processes and long-term compliance. We’ll show you exactly what to look for when choosing MTD-compatible software in the next section.

4. Sign up for MTD for Income Tax with HMRC

Once you’re eligible and have MTD-compatible software in place, you’ll need to sign up for MTD for Income Tax with HMRC. 

In this context, eligible simply means: your qualifying income meets the relevant threshold and you’ve reached your mandatory start date. HMRC may notify you that you’re within scope, but you still need to complete the sign-up step yourself.

In most cases, you sign up online via your HMRC account (Government Gateway). You’ll be guided through an MTD for Income Tax sign-up journey, which typically involves confirming who you are, confirming the type of income you’ll be reporting (self-employment and/or property), and connecting your HMRC-recognised software so you can start submitting under the new system.

5. Plan ahead and set reminders

MTD introduces multiple deadlines each year, not just one annual submission.

Make a note of the quarterly update deadlines and your year-end submission date, and set reminders in your calendar. Planning ahead makes compliance routine rather than reactive, and helps you avoid penalties for missed submissions.

Tip: You don’t need to wait until MTD for Income Tax is mandatory to start preparing. It’s worth getting your digital records and software set up early so you’re ready well before your start date.

How to choose the right MTD-compatible software

MTD for Income Tax can only be managed using HMRC-recognised software, so choosing the right solution is crucial for staying compliant. The software you use will shape how you keep records, submit updates, and manage your tax obligations throughout the year.

What to look for in MTD for ITSA software

Not all “MTD-ready” tools are the same. When choosing software for MTD for Income Tax, make sure it:

• Is recognised by HMRC for MTD for Income Tax specifically (not just MTD for VAT)

• Allows you to keep digital records of income and expenses

• Supports quarterly updates to HMRC

• Handles the Final Declaration at the end of the tax year

• Works for your situation, whether you’re self-employed, a landlord, or both

The right software should support your day-to-day processes, not create extra work.

How Tide supports MTD for Income Tax compliance

Tide is designed to support both sole traders and landlords as they move to MTD for Income Tax.

With built-in accounting software, you can record income and expenses digitally, automate everyday admin, and stay prepared for quarterly updates and year-end submissions.

Crucially, MTD for Income Tax submissions are handled using HMRC-compatible software, powered by Sage’s bridging technology. This ensures your data is submitted in line with HMRC’s MTD for ITSA requirements, without the need for separate tools or manual workarounds.

By combining business banking and accounting in one place, Tide helps simplify MTD compliance and makes ongoing reporting more manageable.

Wrapping up 

MTD for Income Tax is a big change, but it doesn’t need to be complicated. With advanced planning and the right software, you can transition to digital reporting with minimal disruption to your work. 

Here are the most important points to remember:

• MTD for Income Tax replaces the annual Self Assessment return for self-employment and property income with a digital reporting process

• Your MTD obligations and deadlines depend on your qualifying income, based on gross income from self-employment and/or property

• Under MTD, you must keep digital records, send quarterly updates, and submit a Final Declaration at the end of the tax year

You must use HMRC-recognised software to stay compliant, and choosing the right tools is one of the most important steps in preparing for MTD for Income Tax. 

Consider a solution like Tide which combines business banking and accounting in one platform — enabling you to easily manage all your digital records and meet HMRC’s requirements. With Tide, you can keep income and expense records digitally and submit MTD for Income Tax updates using HMRC-compatible software, helping you prepare for quarterly reporting and the end-of-year Final Declaration without juggling multiple tools.  Learn more about how Tide supports your transition to Making Tax Digital.